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Long-term-care insurance has some new incentives


New York -- How will America care for an aging population at a price that taxpayers can afford? One answer is private long-term-care (LTC) insurance, which pays your bills at nursing homes. When senior citizens buy these policies, they provide for themselves instead of looking to the public for help.

Unfortunately for younger taxpayers, there's not much incentive today for seniors to purchase LTC coverage. It's smarter, financially, to shelter their personal assets and rely on the Medicaid program.

The government covers nearly 53 percent of all nursing-home bills. Ostensibly, the Medicaid program is only for the poor. But elderly people who see a nursing home in their future can make themselves "poor" artificially, by transferring assets to their children. Then they'll qualify for Medicaid. Only a few states set income limits.

There are drawbacks to being on Medicaid. Patients get double rooms in the nursing homes rather than singles; they risk losing their place if they have to spend time in a hospital; they may not have access to the best facilities. Still, many seniors (not to mention their children) worry more about hanging on to their savings than about the risks of being a Medicaid patient.

To check this lunge toward dependency, the Robert Wood Johnson Foundation is backing pilot programs in four states. The objective: to make it more attractive to buy long-term-care insurance. Connecticut's program began in April; Indiana and New York expect to be ready this fall, California in 1993.

The main reason people shift assets is that they hate to exhaust savings on nursing-home care. You normally don't get Medicaid until you've run through your own assets (aside from an allowance for your spouse and, generally, your home equity). So these four states are experimenting with bribes. They're letting older people who buy long-term-care insurance go on Medicaid without using up all of their assets.

Connecticut residents, for example, can decide how much of their savings they want to protect. If they'd like to hang on to $50,000, they'd buy $50,000 worth of nursing-home insurance. Once their policy has paid out that amount, and they've tapped all but $50,000 of their other assets, they qualify for Medicaid. Their retirement income still goes toward the nursing-home bill, according to the usual Medicaid formula. But Medicaid covers the portion that they cannot pay. Cost of $50,000 worth of protection for a 65-year-old: $600 to $1,100 a year, depending on the policy options.

The policies certified for this program generally have better benefits than others on the market, says Kevin Mahoney, project director for the Connecticut Partnership for Long Term Care. Three insurance companies, Travelers, AMEX and Blue CrossBlue Shield of Connecticut, are participating, and six have their policies under review. Four hundred policies have been sold.

Indiana and California plan to follow Connecticut's lead. But New York is taking a different tack. "Our policy is based on time," says Gail Holubinka, director of New York's project. Every policy will insure you against three years in a nursing home, six years of home care and a combination of the two. The insurance might not pay all of your bills; some of the money may come from your pocket. But after the requisite time has passed, you'll qualify for Medicaid. Estimated cost for a 65-year-old: $1,500 to $2,000 a year.

The big question is whether these policies offer enough incentive to encourage monied seniors to buy. Stephen Moses, director of research for LTC, Inc., in Kirkland, Wash., thinks not. "They provide a carrot but not a stick," he says. Seniors who transfer assets still come out financially ahead.

If he were long-term-care czar, he said, he would let everyone get Medicaid, regardless of income and assets. But after they die, he'd tap their estates to recover the cost of care. If they wanted all their property to go to their children, they'd have to pay for their care with private nursing-home insurance.

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